On February 27, 2018, the Department issued a Return Adjustment Notice notifying the Taxpayers that their return had been adjusted for 2016 denying the refund claimed. On May 22, 2018, the Taxpayers sent a letter formally protesting the denied refund. On the return the Taxpayers had claimed the Special Needs Adopted Child Tax Credit for each of the four children they had recently adopted. The main issue presented in this protest was whether Mr. and Mrs. Owens were ‘taxpayers’ as defined in the Tax Administration and Income Tax Acts. Both reside outside the state and did not have any business activity in New Mexico. The Taxpayers had argued that they were indeed taxpayers because they were subject to federal taxes, if not New Mexico taxes, but the Hearing Officer determined that this was far too broad a reading of the law which had meant individuals with income-generating activity in the state. The Taxpayers also said they believed they were engaging in business in the state because they had been receiving payments from the state. Since the foster children had been from New Mexico, the state had made payments to the Taxpayers. New Mexico had required the Taxpayers to receive training and become certified in the care of foster children. But the Hearing Officer decided that this type of activity was simply not a business activity. Foster care payments are not taxable nor could foster care ever be construed to be a business. Because the Taxpayers did not engage in business or income-generating activity within the state, they were not “taxpayers” as defined in the statutes and could not be allowed to take the credit. The Taxpayers also argued that the credit should be allowed because the instructions were not clear and left open the possibility that individuals with no tax responsibility to the state might qualify for the credits. Though the Hearing Officer agreed that this was the case, the instructions did not anywhere state that the credit would automatically be allowed if applied for. This having been determined, the Hearing Officer ordered that the Department had been correct in making the adjustment and ordered the credit disallowed.
Mark A & Ikesha M Owens